Friday, December 17, 2010

I was surprised when I read recently that Napoleon Hill, in his book “Think and Grow Rich” said that he looked at all the great entrepreneurs, and the one thing he found is that they all had a huge sex drive. On the business side, we all know that the sex industry is rife with entrepreneurs, so I wonder if there is a connection?

Implying a connection may be an over-simplification of Hill’s classic, but his chapter on “The Mystery of Sex: Transmutation” certainly goes into some depth about how the energy of the libido is often channeled by successful people to focus on achieving specific goals, creative, political, entrepreneurial or otherwise.

All this, and Hill wasn’t even writing about the entrepreneurs who founded and run businesses in the “exotic erotic” category. Considering that passion has always been a much vaunted trait for the founders of successful startups, it’s not hard to see a sublimated sexual drive at work.

In case you are assuming that this is an all male domain, a University of California survey not too long ago says that 70% of women check out pornography, 17% of women are addicted to pornography, and 13% of women check out pornography at work. And the number of women entrepreneurs in this industry is growing rapidly.

Let’s focus for a moment on the business elements of the porn industry, and what other industry startups and entrepreneurs might be able to learn from them. The underlying principle of any business -- whether it be online or offline -- is to build a business model that successfully generates revenue while limiting expenses.

In fact, this is one of the critical points to remember about the sex industry. You may not like the product it sells, but the fact is, the model used by the online pornography business is a proven commodity. For a very long time, pornography has proven to be successful in the offline world.

Online, the Internet is all about technology and using it effectively. And no one group has contributed more to refining Internet technologies than the porn industry. Developments in content creation, communications delivery, e-commerce, and security each underwent a trial by fire within the porn industry.

In the case of some technologies, such as streaming video, pornography delivery was one of the only initial places for its application. Not only did online porn entrepreneurs utilize some of these technologies, but they also understood their limitations and their business ramifications.

Successful porn entrepreneurs have pioneered new approaches to get people to give their credit card numbers and to visit their sites enough times to keep providing revenue. They introduced multiple interrelated web sites, cross-targeting, and exit interstitials well before any other online segment.

Although the online pornography industry has many helpful business practices for us to examine, it also has some bad business practices: things like spamming incessantly, having a billion exit interstitials on a site so it is impossible for someone to ever leave, and misleading people with "free" offers that still require payment via a credit card.

On top of all this, it turns out the adult entertainment industry is pretty much recession proof. Makes you wonder what kinds of innovations are going to flow down to us in the near future.

But I digress. Let’s get back to the concept of sex and the entrepreneur. You might assume that Hill’s concept of channeling sexual energy or ‘transmutation’ is a recent one, but he first published his classic book back in 1937, during the Great Depression.

Hmmm. I guess we all should take comfort in the fact that even though we live in a world of constant change, some things will always be the same.

Saturday, December 11, 2010

Taking other people’s money to fund your startup changes your life in ways you cannot predict. And many of those ways are negative.

I meet with dozens of entrepreneurs a week. No matter how they couch it, they are asking for money. They come to me wanting to know first, will I invest myself? Doubtful, unless I already know them really well, know the company really well, and have some spare cash. Those often don’t occur simultaneously.

Okay, then will I connect them to someone who will invest? At the very least (or perhaps it’s the very best), they ask me how to get ready for funding. What do they need to do?

I always tell them to forget it.

To someone laboring in a cash-strapped startup, money often seems to be the endgame. “When I get funded,” the entrepreneur thinks, “I can build a prototype, hire a development team, go to market, scale more quickly, and beat my competition.” All problems will go away.

Maybe. Maybe not. But there are some things that DEFINITELY come with other people’s money. They’re new and different problems.

A board. Many startups have an advisory board of sympathetic people with industry expertise, or people who enjoy mentoring, or people who donate a few services on the come. Once you take investment, you will also have a fiduciary board, with the responsibility of making the company successful. Some of those will be outside the company. Be careful they don’t outnumber your people. And that they don’t set your co-founders or key employees against you in meetings. If you can, keep an odd number of people on the board, people who support you, so the board won’t be deadlocked.

Deadlines and benchmarks. Few investors send you the entire check immediately. Most of them give you some money and withhold the rest until you have proven something. Those who give you money often take a board seat so they can watch you.

Financial controls and budgets. Most startups are terrible with systems for payables and receivables. But there’s an old aphorism that cash is King, and when you get a large sum, you think it will last forever, until it doesn’t. You have to make the money hold out until you have met that deadline, and if you miss the mark, you might never see the rest, even though the problem that kept you from meeting it was out of your control. It’s funny how investors can forget everything from technical glitches to supplier problems, to the earthquake that destroyed your factory.

Strange course corrections. Yes, it is now in vogue to say your startup can, or did, pivot. But when your investors decide that you are going to pivot and you don’t think that’s the right direction, the wrong investor can force you in a direction you didn’t want to go in, wasting time and money. Much of this depends on how “smart” the money is about what you are doing. Don’t ever take dumb money, even if you are starving.

Demands on your time. Investors are a time suck, because they need to be handheld. The worst investors are small investors. If you raise an angel round consisting of five investors who put in $100K each, that’s five people you have to answer to. Five phone calls every time things change direction, or something bad/good happens. That’s why there is an entire industry built around “investor relations.”

An early exit on your part. I have actually known one guy who has been ousted from the CEO job in not one, but two of his own startups, by investors who either wanted to bring in their own guy or even their own team.

I have known more than one who has been shuffled to another position whether for the right or the wrong reasons. Often these shufflings are good, because they bring in experienced management. But sometimes they bring in management with no industry expertise, and they destroy both morale and your vision.

Remember “The Social Network” movie about Facebook? Remember what happened to the alleged co-founders when Peter Thiel came in? Well, some of the people who considered themselves co-founders suddenly found out they weren’t!

Moral: Before you decide that it’s absolutely necessary to take outside investment, explore all the possible ways you can partner, outsource, affiliate, collaborate, or…heaven forbid, get customers.

Today’s article is presented by the founder of Stealthmode Partners in Phoenix, Arizona. She is a true angel investor, and has helped package and secure funding for many high-tech startup companies in the area. She has also created positioning and marketing strategies for dozens of growth companies. You can contact her directly at francine@stealthmode.com.

Friday, December 10, 2010

It seems like only a few months ago when I wasn’t sure if Twitter was relevant to my business, or if it would be a waste of time. Now I have over 280,000 followers on Twitter as StartupPro, and the business is fun as well as profitable. I’m now convinced that any entrepreneur can use it to kick-start their business, and build their brand as well.

First, I’ll try to answer the most common question I still get from business people “What is Twitter, really?” For business people, it’s a way to put out “sound bites” or tiny ads on the Internet, much like you see them in the mainstream media on TV, but without the cost, to your prime audience.

Actually they are “txt bytes,” like cell phone text messages in length, and they are broadcast to all your followers, or directed at select recipients. People can respond in the same fashion with personal requests or general comments. The important responses are real “business leads.”

A lot of people are doing some very innovate things with Twitter. I won’t cover those here, but I’ll offer some practical tips to get you started:

Offer something of value. Make the relationship a win-win. That means give before you expect to get – free advice, special promotion, pointer to useful information, or sometimes just friendly conversation. Show that you are a real person, sincere and trustworthy.

Search tweets for business leads. With Twitter Search, and a host of free tools on the Internet, you can mine the universe of all tweets for people needing your product or service. Set up filters to find them, and follow-up diligently and politely on every lead.

Use free tools to improve efficiency. Twitter’s native user interface is arcane. Use tools like TweetDeck to set up your control room, SocialOomph to spread out your responses, and WeFollow to find key players in your domain. There are many others.

Create separate account for business. If you like Twitter for personal notes to your friends, use another account for business activity. Your business account should have a name, picture, and tone that reflects your business brand and logo.

Become an authority in your area. One of the challenges of buying things on the Internet is to identify the quality sources from the scammers. Use Twitter to personalize your business, knowledge, integrity, and your leadership. People still buy from people.

Stay top-of-mind with experts. Seek them out, offer interesting links, respond to tweets, and post thoughts for conversation at least a few times a day. Twitter is not like email, where people diligently save and respond to every message. Stand out in the stream.

Follow potential clients. That’s how you tell your potential clients and customers that you exist. They will see you following them, check out your profile, and if you have something they can relate to, they will follow you back. This is “pull” marketing.

Increase size and quality of following. Never stop working to increase your following, by finding others, and improving your offering. A larger following means more credibility, which iteratively attracts more followers. Don’t be afraid to un-follow people who don’t fit.

Re-tweet for double impact. Adding ‘RT @username’ in front of the original tweet forwards it to your followers, and is a double win, if used selectively. It improves your value to your followers, and increases the audience and credibility of the original sender.

Cross link all your web profiles. Make sure people can find you from all directions on the Internet. Your website should have a link to your blog, your Twitter profile, LinkedIn profile, Facebook, and vice versa. This also improves your Google search ranking.

Twitter is merely a constant stream of absolutely current public communication. The good news is you can turn it on or off as often as you like, and mine the database at very low cost for useful information. Even big companies like Dell and HP use it to find customers, and claim million dollar returns. It’s a valuable resource for every startup. Tweet me if you need help.

Monday, December 6, 2010

As an angel investor who has considered hundreds of startup opportunities, the concept of a value proposition may be the most misunderstood and taken for granted element that I see in newly formed startups. While entrepreneurs freely throw around the term “value proposition,” they rarely offer a thoughtful explanation for the “value” their business is providing and, more importantly, an understanding of who their real customer is and what valuable benefit their customer perceives they are receiving.

To address this gap, I’d like to discuss a basic value proposition definition below.

The value proposition is a short statement that clearly communicates the target customer, the customer’s problem and the pain that it causes, the unique solution that addresses this problem, and the net benefit of this solution from the customer's perspective.

Let’s consider each of the four elements of the value proposition definition above:

The target customer. Many entrepreneurs quote a large market size and impressive dollars spent in the market, but not many entrepreneurs can name specifically who will buy the proposed product or service, and how many of these customers exist. To identify a target customer, it helps to document a customer profile statement, identifying all of the traits known about the customer and what makes them different and unique from the larger market population. Out of this exercise comes a clearer understanding of what makes them a “target” customer. It’s not uncommon that a company serves more than one target customer, leading to a customer profile for each type.

The customer’s problem and the pain that it causes. Entrepreneurs should clearly articulate the customer’s problem that they are addressing in layman’s terms. The problem definition should also include a description of the level of pain it causes. This step is often overlooked, as entrepreneurs frequently assume a pain level that is greater than actually exists for the customer. This hopeful thinking comes from a lack of study and the development of empirical evidence that supports the relative importance of the painful problem. While the pain level can be expressed in dollars, what matters here is the extent to which the target customer desires that the problem be solved relative to current solutions. This step is critical to the potential of the startup enterprise. The more painful the unsolved customer problem, the greater the opportunity is for a startup’s success. Overestimating the pain level of a customer problem causes time, money and talent to be spent on a mission that leads to disappointment and frustration.

The unique solution that addresses this problem. Here, the startup is addressing the core purpose of its new business. What makes the solution worth pursuing? Why is the venture worthy of investment? What has the startup discovered that others in the market before it have missed? When its unique solution solves a customer’s painful problem better than all other available options, the startup has successfully cleared an important early hurdle to a successful venture. Again, evidence here is key. Demonstrating that a customer exists with a painful problem that the company solves better than anyone else makes for a compelling startup beginning.

The net benefit of this solution from the customer’s perspective. Here is where true potential is discovered. First, value is strictly perceived in the eyes of the customer. If the startup sees its solution as very valuable, but the target customer doesn’t, there is no foundation on which to build a company. Second, the benefit of the solution must be weighed against its cost and compared to all other options available to the customer. This is a critical element of understanding in considering growth potential and ultimate market capacity.

The value proposition is a primary foundation characteristic that I consider as an angel investor. When starting a new enterprise, entrepreneurs should offer a strong value proposition case, one that includes empirical evidence that demonstrates you know who your customer is, that they have a painful problem worth solving, and that you offer a unique solution that they perceive provides more net benefit than other available options.

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Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at jbockerstette@me.com.

Saturday, November 27, 2010

Is your team fully engaged to give their best, day in and day out? In a recent study by TowersWatson, an international HR consulting firm, fewer than 21% of employees surveyed described themselves as “highly engaged,” down from 31% in 2009. 8% admitted to being fully disengaged. Having only one-fifth of your employees highly engaged is not the hallmark of a “Winning Business.”

Other studies show that employee engagement derives from three important factors:

Alignment of the employee with the goals and vision of the company.

Faith of the employee in the competence of management and their commitment to realize the goals and vision.

Trust in their direct supervisor that he or she will support his or her people and help them to succeed.

It has often been said that employees rarely quit companies. Instead, employees quit their managers or supervisors by leaving the company. Mark Herbert, a consultant focused on engagement, says: “Engagement lives and dies on the front line of your business.”

Increasing positive managerial behavior and reducing negative managerial behavior will go a long way towards improving employee engagement. When your talented employees are engaged, they are able to perform spectacularly and build and improve your winning business.

Here I offer a short list of “do’s and don’ts” to get managers and supervisors started in focusing on ways to improve engagement (and to be better managers). The list is not exhaustive. I welcome additional thoughts and ideas from you. First are the don’ts:

Don’t get angry. “Getting angry is easy. Anyone can do that. But getting angry in the right way in the right amount at the right time, now that is hard.” (Mark Twain) Anger does not belong in your managerial kit bag.

Don’t be cold, distant, rude, unfriendly. Especially in difficult times, employees take cues from their immediate supervisors and need to hear from them. As such, your team will judge you by your action, moods, and behaviors, not by your intent.

Don’t send mixed messages to your employees so that they never know where you stand. Keep your message simple, focused and prioritized. Too many messages and initiatives just confuse and alienate people.

Don’t BS your team. This includes saying things that you don’t believe in. This includes hiding information and just plain lying. By the time each of us is in our early 20′s, we have all developed very well-tuned BS detectors.

Don’t act more concerned about your own welfare than anything else. Your success will come through the success of your team. “Self-serving detectors” are also very well-tuned in most employees.

Don’t avoid taking responsibility for your actions. You are the boss. As such, you are accountable and the buck stops with you. You are trying to develop accountability throughout your company. So, lead by example.

Don’t jump to conclusions without checking your facts first. A few years ago, I watched in horror as a colleague of mine started screaming at an employee of his who had missed an important meeting that morning. After several minutes, the employee responded: “I apologize and should have contacted you. But, I just got back from the hospital as my mother has been diagnosed with terminal cancer.”

Here are the do’s, which are even more important than the don’ts:

Do what you say you are going to do when you are going to do it. There is no better way to communicate the message that you are accountable for your promises and that everyone in your company should be accountable as well.

Do be responsive (return phone calls, emails). As a manager, your team can be considered to be your customer. You want your sales team to punctually respond back to customer requests, so you should do the same.

Do publicly support your people. Your disagreements and disappointment with your employees can be communicated later and in private. Nothing appears so hollow as your attempt to blame your team for failures.

Do admit your mistakes and take the blame for failures.

Do recognize your team. “You can never underestimate the power of simple recognition for a job well done.”

Do ask and listen. “The manager of the future will know how to ask rather than how to tell.” (Peter Drucker) Some of the most dangerous words for a manager to ever say include: “But, you just don’t understand…” “Because I said so…”

Do smile and laugh. Have some fun. But, be genuine; programmed fun and faked laughter is worse than doing nothing. When appropriate, laugh at yourself; it will humanize you.

Employee engagement is a pre-requisite for a winning business. By addressing the actions and behaviors or the managers and supervisors throughout your organization, business leaders can go a long way to enhancing the dedication, commitment, and engagement of their most important asset: their good people.

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Today’s blog is presented by my friend David Shedd, now living in Phoenix, Arizona, who is an experienced corporate executive, and a consultant specializing in winning B2B leadership. See more articles by him at http://davidsheddblog.com or contact him directly at davidshedd@cox.net.

Saturday, November 20, 2010

Making the transition from individual contributor to manager, or entrepreneur to “corporate” executive, is one of the most difficult shifts most of us will face in our careers. A study conducted by a national management consulting firm a few years back indicated that more than 40% of newly appointed managers fail in their first 18 months on the job!

As a consultant working with many entrepreneurs attempting to grow their businesses either for continuity purposes or for sale I see them experience many of the same issues.

In many cases these issues boil down to developing and maintaining effective relationships.Our educational system has a bias towards “technical” skills and individual achievement. Winning means getting the best grades and “setting the curve” as an individual.

Here are some of the most common mistakes I have observed in “new” managers:

They fail the “politics quiz.” Organizational politics are a fact of life. Don’t sacrifice key relationships because a colleague or subordinate has a talent for getting face time.

Don’t try to “clone” yourself. Of course you’re brilliant, that’s why you were promoted. However, good management is getting the best out of the staff you have. Improving employee performance is a process not an event.

Failing to communicate. You avoid giving feedback because you are sensitive to past relationships. People desperately need and desire good, balanced feedback.

The Sprint. Don’t try to accomplish everything on day one to validate management’s decision. Learn your staff and their capabilities. All priorities aren’t equal.

Trying to be Dr. Feelgood. Everybody wants something and it’s hard to say no. Special, confidential deals never stay that way. Your job is to be the boss, not their friend.

You’ve arrived. Management is a continuing improvement and learning process. Seek out opportunities to improve your skills and refine them.

You’re the star. It is very tempting to fall back into doing the “technical” things you did before. You were good at it. Competing with your staff is bad management. You need to transition from player to coach.

When you look at that list I have seen a number of those and a unique set of challenges for the entrepreneur. The common entrepreneur’s issues from my list are number 2, number 3, and number 7.

Even more so than the newly promoted manager, the entrepreneur is the business. There is a tendency to attempt to replicate yourself or in some cases turn the business over to a family member who doesn’t share your passion or acumen.

One of the things we learn in large organizations is that different leadership styles are appropriate in different stages of the business. The passion, vision, and daring of the entrepreneur often need to evolve to the calm hand and head of a professional manager.

Feedback often times is especially difficult for the entrepreneur. It is either provided inconsistently or not constructively. The business isn’t a hobby to them it is their life and others lack of “engagement” can be frustrating.

Similarly, transitioning to “coach” is difficult. Typically the entrepreneur makes all or most of the key decisions. Delegating those decisions is hard, especially without the skills to support effective delegation. Equally difficult is that some of your responsibilities will probably be have to be shared by more than one person. That can be especially difficult.

The entrepreneur also keeps much of the most critical information in their head and within their personal control. Giving up that control and trusting is hard!

As I summarized here, this transition is a difficult one. Achieving results through others is usually a critical component to long term success. As a corporate person it is the key to advancement. As an entrepreneur, if you are the business, the value leaves with you, or its ability to grow is gated by your personal skills. Either way, this is a critical transition.

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Today’s article is presented by my friend Mark F. Herbert, now living in Phoenix, Arizona, who is an experienced corporate executive, and a consultant specializing in optimizing organizational performance. Find out more about him at www.newparadigmsllc.com or contact him directly at mark@newparadigmsllc.com.

Sunday, November 14, 2010

As I outlined last week, trophy angel investors are always looking for trophy entrepreneurs. In many areas, not enough entrepreneurs meet the criteria, so it’s still a buyer’s market. The result is that the Main Street Venture Fund consistently has more money available than good opportunities for investment.

After considering about 200 investment opportunities over the past two years, we have established a decision making process to identify trophy entrepreneurs and startups. It consists of eight major criteria, which we call the “Eight P’s for Successful Funding”.

Proposition. A poorly understood value proposition causes false starts, lost time, costly mid course corrections and general frustration for all stakeholders involved. The value proposition is a short statement that clearly communicates the target customer, the customer’s problem and the pain that it causes, the unique solution that addresses this problem, and the net benefit of this solution (value derived versus relative cost) from the customer's perspective. Creating a strong value proposition requires substantial customer insight, thorough study, an understanding of the real value of intellectual property, thoughtfulness, and several iterations.

Potential. Once we understand the target customer and value proposition, we need to know how many of these customers exist and how often they will buy the company’s products or services. While most entrepreneurs want to prove an enormous market size potential, rarely does the entrepreneur know how many real customers exist and how many products they could potentially buy over a period of time.

People. There is no product idea good enough to overcome bad partners. We look for many attributes amongst the team, including communication, leadership and management skills, subject matter knowledge, business expertise, relevant experience, openness to influence, team cohesion, motivation, integrity and credibility.

Plan. Unfortunately, we read far more poorly written business plans at Main Street than good ones. Entrepreneurs tend to write business plans that are difficult to read, heavy on technology, and give little thought to the business model and commercialization strategy. A good business plan should be no more than 20-25 pages long and tell a compelling, cohesive and complete story about the proposed business. Repetition will kill an otherwise acceptable business plan. Supporting detail should be included in an appendix, where the reviewer may read it if desired.

Profit. The financial plan should include a profit and loss statement, balance sheet, and cash flow statement that ties together and is consistent with the business plan narrative. This area can be especially challenging, as the skills required to complete a competent financial plan often exceed the entrepreneur’s ability. Particularly important is the capital structure plan that the business intends to follow as it moves toward commercialization.

Price. We see many entrepreneurs who grossly over value their company when attempting to obtain outside investment. The trophy investor wants to know how much money is needed, where the money will be spent, how long it will take to spend it, the long term strategy for future spending and funding, and how the valuation will grow over time. Planning for valuation growth and investor exit should begin prior to the investment.

Participation. Main Street members consider our involvement in our portfolio companies as important as our investment. A Main Street member typically joins the board of directors and actively participates in corporate governance and as an advisor to management. If needed, we will also take a more active role in the company in the area of business planning and execution monitoring.

Partnership. Main Street has a desired investment term of three to five years. While our members invest individually, their interests are represented collectively through our board of director seat. Our board member monitors the company’s progress monthly and reports back to the members. We have learned that even with successful relationships, the time, attention and support required to create a great company is inevitably greater than we had estimated.

So, if you want to attract a trophy investor, first do your homework and hone your skills on these eight P’s. Then you too can be a trophy entrepreneur, with dollars raining down on you.

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Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at jbockerstette@me.com.

Sunday, November 7, 2010

Angel investing in most parts of the country remains a relatively informal and unstructured process. The depressed economy has dampened the angel community’s appetite, making the identification of the trophy investor more important than ever. Professional angel investing takes time, knowledge, skills and resources. The trophy investor understands these challenges and has developed a professional process to manage his investments.

Main Street Venture Fund LLC, an angel fund of about 25 private investors, was formed by Ruffolo Benson LLC in northeast Indiana with the intention of bringing together area entrepreneurs and private investors to create economic value for the region. I will share several of our group’s insights from the past two years.

For an angel investor, it’s a buyer’s market. At Main Street, we consistently have more money available than we have found good opportunities for investment. The ideal angel investor possesses a variety of personal characteristics that likely have contributed to successful achievements in his or her own careers. In seeking the trophy investor, consider these traits:

Financial capability. The investment amount under consideration should be comfortable for the angel investor. The investor must see this class of investment as completely discretionary, where all of the money may be lost, but the experience will be one that the investor benefits from and enjoys nonetheless. If the investor stresses over the investment, the interests of the investor and entrepreneur can easily grow at odds with one another.

Business wisdom. Prized angel investors not only contribute money to an opportunity, but also important wisdom acquired from prior experience in areas such as stakeholder relations, employee hiring, and strategic planning. Ultimately, it’s this intangible capability that can add the most value to the company.

Emotional maturity. Entrepreneurship is inherently full of mood swings. A trophy investor is a great coach and mentor, sometimes providing the only shoulder an entrepreneur can cry on during difficult times. Good investor/entrepreneur relationships often grow informally into regular communications covering a wide range of topics. This mentoring can be particularly useful to the entrepreneur working through the personality issues that tend to dominate start up companies.

Expertise. Along with business wisdom and emotional maturity, the trophy investor will possess specific expertise in the business. Some angel investors only invest in industries where they have knowledge and prior experience. The more industry experience an investor has, the more useful she can be.

Network. The trophy angel investor typically participates in networks of other angel investors and venture capital firms that are available for evaluation, feedback and syndication. This access can be extremely valuable to an entrepreneur attempting to find additional funding.

As we have considered about 200 investment opportunities over the past two years for the Main Street Venture Fund, we think of our decision-making as a process based on eight major criteria, which we call the “8 P’s for Successful Funding.” I’ll be outlining these in a follow-on article.

Successful entrepreneurs have many skills that play important roles at different times during a company’s life cycle. The skills required for obtaining funding, such as business plan writing, pitch presentation and group communication are different than the skills needed to grow and operate a successful business. Entrepreneurs who ignore their weaknesses and hope investors don’t notice are making a mistake. Landing a trophy investor requires the personal skills, competency, integrity and experience that comes from being a trophy entrepreneur.

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Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at jbockerstette@me.com.

Saturday, November 6, 2010

If your confidence is low about starting your own business, and you are tempted to “reduce the risk” by signing up for one of the many “work at home” startup offers you see, think again! These offers that you see on every social network and Craigslist are invariably scams.

The problem is getting worse. To stem the tide, the web giant Google late last year launched a legal battle against more than 50 companies that allegedly infringe upon the Google name to promote "work-from-home" scams. Their lawsuit came less than one month after a separate class action complaint was filed against one of these companies for a work-at-home scheme.

My definition of a scam here is any deal that wants some sort of cash payment before you can start "making money". Typically you need pay a registration fee; or buy a starter kit, training materials or a database of hot leads. Take that as the base warning flag - you should never have to pay money to work!

If you are still tempted to beat the odds, and would like to be convinced that yours is the one-in-a-thousand “real” offers, here are a few more action items you should consider before you commit:

Contact the company. Try to find out the company name and contact information. If there is only an email address, they are likely not a legitimate business. Test the contact info. If it’s an 800 phone number, listen to see if the ringing tone changes while you're waiting to be connected: that’s a giveaway to calls diverted to an overseas base.

Ask for an interview. Ask yourself what kind of company would hire someone based on an e-mail, rather than a face-to-face or phone interview. If the company does not require an interview, as a potential employee or contactor you have a right to ask them why. You can also ask them what kind of screening they do for their employees if they do not interview them.

Check company location. Is the company overseas, or have no location specified? Beware of companies or individuals overseas who ask you to cash money orders or checks and offer to let you keep a portion - these are always scams.

Google name or details. An Internet search could give you revealing information about the company or let you know how their scam operates. It is wise to do an Internet search of a company before you begin to work for them or before you send a payment. An Internet search may show feedback from other people who have been scammed by the company.

Check posting frequency. Many scammers use an automated spamming program to post jobs repeatedly and throughout different cities. If you notice a posting that is re-posted every day or multiple times a day, this is usually a telltale sign that the post is a scam.

Pay by credit card. This one may sound counter-intuitive, but liability for online credit card purchases is usually limited to $50, if you are dissatisfied and report the transaction. Some credit card issuers will even waive the $50 deductible.

Of course, it goes without saying that you should never provide personal information, like social security number, bank account info, or credit card numbers to anyone to secure a job opportunity. The final test is that when something sounds too good to be true, assume it is a scam.

So even if your confidence is low about running a business, remember that you can actually reduce your risk by doing your own startup, compared to the other “low risk” alternatives on the Internet. Keep your wits about you, and save a friend tomorrow by helping Google clean up the problem today.

Sunday, October 31, 2010

In addition to the “green” sector, which I outlined a few weeks ago, I see biotech as one of the places where startups can always go for real opportunities. Recession-proof products with innovation continue to come from the biotechnology industry. Plus, it was the top industry attracting VC money in the most recent quarter of 2010, with a total of $944 million.

In its most general sense, biotech is used to refer to any sort of technology that uses biology or other medical technology to accomplish its end. It includes the use of microbes, or life processes, to produce materials and products that are useful to mankind.

Two top-notch analysts in this area, Eric Schmidt and Ross Muken say in Forbes “True innovation and products with a more durable revenue stream are coming from the biotechnology side of the industry,” They argue that biotech drugs treat life-threatening diseases - so recessions barely dent sales growth.

The hot areas of research today are cancer, AIDS, diabetes, heart disease, neurological diseases, immunological diseases, viral infections and tissue regeneration, where there is a high degree of incidence in the population.

Success in these areas will ensure a faster return on investment in R&D and licensing efforts. An alternative is to start a niche company with an orphan drug that, if successful, is protected from competition for several years. There is always money around for the right team and the right plan, and I believe biotech is a good area to start from.

If you are looking for the ideas on top of the list, I recommend you start with one of the following hot areas of biotech. Each one has the potential of annual sales more than $1 billion, which puts it in the new “blockbuster" drugs category:

Metabolic disorders. "Metabolic syndrome" is the politically correct term for patients who are obese, diabetic, and face increased risk of heart disease. Now that half of the U.S. population is technically obese or overweight, an effective diet pill has become the Holy Grail of drugs.

Vaccines. With new products to prevent cervical cancer, avian flu, and the common cold, vaccines are back in vogue. There are many other novel vaccines now on the table for development, ready for entrepreneurs who can license and commercialize them.

Infectious diseases. Now that HIV has been transformed from a death sentence to a chronic disease has turned the infectious-disease-drug market into a multibillion-dollar industry. The next frontier is an effective treatment for Hepatitis C. Current drugs have terrible side effects and only "cure" 50% of patients.

Lowering blood cholesterol. Drugs in this category are commonly called “statins.” They not only control blood cholesterol, but also stabilize plaque and prevent strokes through anti-inflammatory and other mechanisms. This is a huge need as the population ages.

Another biotech subcategory with opportunity is new medical devices. A friend of mine, a distinguished physician and surgeon, happens to manage a small private investment fund seeking early stage companies with new medical devices that have an established market. If you know a hot new startup in this area, I’m interested.

There’s never been a more exciting time to be a biotech startup. People tell me that “Big Pharma” companies have nearly $100 billion in cash that will keep buyout offers large. There are plenty of Holy Grail areas to focus on. How can you argue with this logic? Now is the time to jump in.

Sunday, October 24, 2010

Social networking is indeed the new business networking. But you need to understand the different cultures to make it work. For example, my personal interest is entrepreneurs, and MySpace is for tweens. Me going to MySpace is sort of like your parents crashing your high school prom – everyone is uncomfortable and neither side has any fun.

Since I’ve been lurking around the various social networks for the last year or so, I’ve learned a few things, so I thought it would be helpful to clue you in on current networking cultures, and how they map into the business networking scene.

Every social network, including MySpace, claims to be a mecca for business people to network and sell products. That’s a necessary part of their hype to build followings and compete in the numbers game. But the reality is that each has a different style and some unwritten rules.

Here is my characterization of the social networking scene, as it relates to business networking for entrepreneurs and startups:

Twitter. Believe it or not, this is my favorite for entrepreneurs. It is the melting pot of 75 million young and old members, business, personal, and celebrities. It’s the Internet version of the old daily newspaper, with serious news links, celebrity gossip threads, and business people of all sorts looking for information and leads. Entrepreneurs can find like-minded people here.

Facebook. Here is the big gorilla of social networks, now exceeding 500 million members worldwide. It was built by Gen-Y, but it has now grown far beyond that. Facebook has groups like “Facebook for Business,” and millions of Fan/Business Pages, so be there or be square. Just don’t expect anything too technical.

LinkedIn. This is the “old guard” of 60 million professionals, mostly populated by experienced executives and serious marketers. There are groups like “Applied Entrepreneurship”, where discussions get animated about the value of patents, and the legality of MLMs. Gen-Y will not feel comfortable here, but it’s an important business information source for entrepreneurs.

MySpace. As I mentioned earlier, this network is dominated by musicians and tweens. Yet they have groups for “Entrepreneurs” and “Business Networking”. I tried business discussions here, with no response. This does seem to be the forum for “get rich quick working from home,” but it’s not the place for most real entrepreneurs.

All the rest. (Ryze, Plaxo, Orkut, Ecademy, Bebo, Friendster, etc.) There are dozens of other social/business networking sites out there, some regionalized, and some are special interest boutiques. For example, Orkut is most popular in India and Asia, while Ryze is popular in Europe.

Before you decide to build your own perfect match, combining the best of all of these, consider these sobering statistics. The four major sites above all worked for several years before they saw any revenue, and have required investments of $50 million or more to build their brand. Viral marketing costs real money, to pass that magic million member mark, before your advertising revenue will even pay the rent.

My advice is to join one or two to check for value, rather than trying to do them all. It’s just like joining only one or two business groups in a new town, rather than trying to be active in all of them. You will be surprised at the number of valuable people connections, and the real leads you will get for your business. You have to give as well as take, listen as well as talk. Observe the social graces, and have fun!

Monday, October 18, 2010

Everyone is talking about how social media can help you jumpstart your business at no cost, and experts are springing up on all sides to help you do it at a high cost. So who do you believe, and what are the keys to success for your startup?

I’ll put my money on one of the originals in the social media marketing game, my friend Lon Safko, who just published his Second Edition of the bestselling book, “The Social Media Bible.” In the book, and in his popular lecture series, he says you can do it yourself, and outlines five steps to success, which I have adapted a bit for startups as follows:

Analyze existing media, social media, and your demographics. Before you start, analyze existing media, demographics, and new social media alternatives for a fit to your rollout campaign requirements. Factor in the fundamental shift to ‘pull’ marketing taking place across the world in media and advertising. Then set your goals.

Understand the basic tools – the social media trinity. Blogging (Wordpress), micro-blogging (Twitter), and social networks are the trinity. Key social networks are Facebook (500 million consumers) and LinkedIn (60 million professionals). Get to know the five W’s of these and others – who, what, where, when, and why. Pick your fit.

Integrate your strategy into the trinity. Social media does not stand alone; it must be integrated into a balanced marketing strategy. Content is still king, so do the proper homework on what you blog, and the quality of the messages you deliver via social media. Put your social network links on your stationery, business cards, and email.

Assess and commit the resources required. At this point you need executive buy-in, decide what you do personally, assess your staffing and out-sourcing requirements, and commit the budget. This is the time to get creative, run pilot projects to look at ROI, and educate the whole team on objectives and activities.

Implement metrics and analytics. You can’t manage what you don’t measure. Determine the proper measurement tools and set up the measurement process. Only then can you determine your ROI. Manage your expectations, and analyze every marketing channel. Lather, rinse, repeat.

The best attribute of social media tools is that most of them are free. The down side is that many of them are limited, or have poor quality, and they come and go each day. You need to allocate a few minutes a day, or every week, to researching via blogs and websites like Tech News World the latest recommendations and reviews. This is not something you can learn once and forget about.

With social media, a key element of success is focus on the message. Never “sell” or push out your message like conventional advertising. The trick is to listen first, add something of value to the conversation, and pull the customers to you because they trust you and want more. According to Lon, the keywords to remember are to be “sincere, authentic, and transparent.”

Now is the time to capitalize on this fundamental shift in power to the customer, who now has real control over your brand message. Companies now have to communicate, rather than just pontificate. Customers see what their peers are saying about you in blogs and product reviews, and how you respond to these, and this impacts their decision more than any advertisement.

But above all, don’t forget to observe your competition and their social media activity. Luckily, you can see and measure online most of the things they can, and see which things work, and which ones don’t.

Finally, remember that it takes time to establish and optimize your presence on social media sites. Use the five steps listed here to leverage your time effectively, stay one step ahead of your competitors, and enjoy the success that social media can bring your startup.

Sunday, October 17, 2010

Hiring the right people into the right positions of a new company is critical to getting funded, and the right people are as critical to success as the funding. Yet the hiring process in most small companies is usually haphazard, and low priority compared to all the other work that needs to get done.

The solution is to make this function one of your highest priority tasks, and formalize the process to avoid the following common hiring mistakes:

Desperation hiring without a plan. Too often, you need a person “yesterday,” so you hire the nearest warm body, without proper consideration of strategic skills required, or how this hire fits into your overall staffing requirements. My recommendation is to hire the core executive team first, and charge them will building their own team.

Poor position definition. The responsibilities of every position need to be clearly defined, realistic, and appealing. Make sure you are not looking for a set of skills and competencies that can’t usually be found in a single person. If the expectations or the salary range are unreasonable, you won’t get good results or a happy employee.

Inadequate candidate sourcing. Going to Craig’s list may be adequate for some roles, but your rolodex and networking are the best source for C-level executives. Save the executive search firm for later, but make sure your search process can yield a robust list of candidates with the qualifications you need. Saving costs at hiring time can cost you a fortune through years of poor and unhappy performance.

Hiring process that starts and stops. Without the proper priority and a formal timetable, your hiring process loses momentum and the results are unpredictable. Good candidates quickly recognize and avoid potential employers who never respond, cancel interviews, and can’t make a decision. Poor prospects have fewer choices so they wait.

Skip the background and reference checks. It’s easy to be so impressed by a mirror-image candidate, or so pushed for time, that you skip the reference checks. Unfortunately, your gut-feeling may be a setup for pain later, when you find out the candidate talks a great story, but never delivers, or is highly skilled but unable to work with customers.

Slow to correct staffing mistakes. In the heat of battle, to complete your initial staffing, every executive makes some staffing mistakes. For example, you may have overlooked a person’s professional shortcomings because of a close friendship. When you realize that you have made a mistake, address the issue in a polite, confidential but firm manner, and then encourage everyone to move on.

Hire without consideration of team culture. You should focus on developing a ‘team spirit’ around the fundamental beliefs and objectives of your emerging company. If your team spirit and culture are developed through Friday afternoon beer bashes and open work hours, people from other work cultures will have a hard time fitting in and performing. A good practice for startups is to have every senior manager interview all significant new hires to ensure that they fit the culture of the new company.

As a startup, your future is all about the people you have on your team, and the people you hire. You need the very best to maintain that competitive edge. It’s normal to make some mistakes, but you need to minimize these by at least avoiding the common pitfalls, and realizing the importance of the staffing process. Then proceed with cautious urgency and make quick changes when warranted.

Today’s article is presented by one of the founders of our Startup Professionals team, Ernst H. Gemassmer. He resides on the West Coast, and has long helped entrepreneurs there, as well as providing turn-around assistance as interim CEO, and International coaching. You can contact him directly at ernst@startupprofessionals.com.

Saturday, October 16, 2010

Startups are tough. For every entrepreneur and every gold prospector, there are more opportunities to fail than to succeed. Yet experts say that quitting too soon is a prime cause of failure in both endeavors. No one knows how many business founders quit digging when they are only three feet from the gold.

Way back in 1937, an author name Napoleon Hill first released a classic book called “Think and Grow Rich,” which started with a real story of a man named Darby prospecting for gold, who gave up on his dreams of becoming rich, a mere three feet from a major gold vein.

A more recent Napoleon Hill Foundation follow-on book, “Three Feet From Gold – Turn Your Obstacles into Opportunities!” by Sharon L. Lechter and Greg S. Reid, highlights the similarities of those economic times with the ones we have today. It also demonstrates that the driving principles for entrepreneurial success haven’t changed all that much either.

While this book is not specifically about entrepreneurs, the motivational and leadership concepts discussed certainly apply. Here is a sampling of quotes from the book which don’t need any commentary from me for you to understand their business applicability:

A dream is just a dream until it is written down. Only then does it become a goal.

Before great success comes, you will surely meet with temporary defeat.

There is a big difference between believing in something and knowing it.

Focus on your people more than your profits.

Work your strengths, hire your weaknesses.

Capture the leaders, corner the market.

Whether the glass is half full or half empty depends on where it began.

Success simply comes from going from failure to failure without loss of enthusiasm.

Find and use your advantage, or someone will take it away.

To succeed you must have “stickability.”

Stay on your toes. Focus on the job at hand.

Run from people with negative attitudes.

Success is the reward for setbacks.

Sometimes the worst situations turn out to be the best opportunities.

There is a difference between being interested and being committed.

Goals are aspirations until they become real. Then they become responsibilities.

Every wealth creator is crystal clear about two things: a vision and a mission.

Success simply comes from going from failure to failure without loss of enthusiasm.

Many receive good advice, yet few profit from it. Will you?

Sometimes you have to step back and look at your situation from a different angle to find a different solution.

The most successful people are the most accessible people. The most successful people want to teach others how to become successful.

You need two types of courage – First, the courage to get started. Second, the courage to not quit!

In fact, these quotes are all from successful business leaders of the current generation who are sharing how they have been able to persevere and keep their fire of passion burning, despite adversity – how by not giving up, they were able to allow their miracles to happen.

The message for you, if you are ready to receive it, is that there is a roadmap to success for everyone. If you are willing to work with mentors, peers, and your team, it only takes a few weeks to cultivate a good habit. After that "we first make our habits and then our habits make us."

In my experience, the real measure of an entrepreneur is his determination to “never give up.” I suggest that all of you can discover your own special gifts and keep moving forward, never giving up or quitting. A real entrepreneur would never stop digging three feet from the gold. Would you?

Tuesday, October 12, 2010

We can measure success in many ways. In business, one important measure is the value of the company. That’s because a company’s value is a composite of all of the quantitative and qualitative factors that comprise a company: revenues, expenses, risks, growth prospects, quality of the management team, competitive advantages, strength of the intellectual property, and so forth.

In general, we want to do the things that increase the value of the business, and we want to avoid doing the things that reduce it. The problem is that we often lose sight of the big picture, and get mired in everyday distractions.

One useful technique for keeping your eyes focused on what really matters is Cayenne Consulting’s Venture Value Scorecard™. It’s human nature to prioritize the metrics that get measured, so the simple act of keeping track is often enough to have a significant positive impact.

The Venture Value Scorecard is a one-page summary of your company’s achievements and assets: the factors that contribute to the value of your organization. It should be updated monthly so that you have a regular reminder of where you’re making progress, and where you may have become complacent.

You can structure your Venture Value Scorecard any way you like (you can download our free Venture Value Scorecard Template here), but I suggest organizing it around the following key elements of value:

People: A strong team is obviously central to value creation. Your Venture Value Scorecard should highlight your recent successes in recruiting highly qualified team members to fill the most important gaps in your organizational structure. You can also use this space to keep track of innovators (R&D personnel) and rainmakers (sales & marketing personnel).

Products: You obviously can’t create value without a viable product (or service) to sell. This section of your Venture Value Scorecard should summarize the important advances you have made recently in research and product development.

Customers: A company’s only sustainable source of cash is sales, so you need to keep track of your business development efforts. You should inventory your best accounts and prospects, as well as the status of any pending major sales.

Partnerships: Relationships with larger firms not only confer legitimacy to your business; they can be an important source of intellectual property, distribution channels, and marketing clout. You should document the status of your partnership negotiations so that you can easily gauge progress.

Net Income: The five factors listed above all contribute to something that is directly measurable: net income. Part of your Venture Value Scorecard should be devoted to summarizing your income statement. Detail isn’t important; tracking your progress is. Items that paint a big picture include revenue by major product area, cost of goods, and operating expenses by category. If you have a lot of non-cash items such as amortization or depreciation, or if you have unusually long receivables cycles, you should also include adjustments to reconcile net income to cash flow.

Assets: Your assets add to your venture’s value, so any recent or pending changes in your assets should be recorded in your Venture Value Scorecard. These assets include things like cash (say, from a pending investment), facilities, inventory, and other property.

Liabilities: Your liabilities detract from your venture’s value. Any recent or expected reductions in your liabilities should also be recorded in your Venture Value Scorecard.

Risks: Unexpected events can kill a firm (of any size), and can therefore detract from its value. This is an opportunity to demonstrate that you recognize the greatest sources of risk facing your company, and that you’re taking prudent steps to mitigate the greatest hazards. Use your Venture Value Scorecard to summarize your major risk management initiatives.

Other: Every company is different, so you’ll need to customize the Venture Value Scorecard for your own circumstances. I suggest you try to figure out the 3-5 key metrics that are used to judge the health of companies in your industry, and keep track of these somewhere in your scorecard.

As noted earlier, your Venture Value Scorecard should be updated monthly. Keep an archive of your old scorecards. That way, you can go back and review the progress you’ve made. I think you’ll be pleased by the momentum you maintain by keeping score.

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Today's guest blog is by Akira Hirai, founder of Cayenne Consulting, a firm that helps entrepreneurs prepare for the fund raising process by developing strategies, business plans, financial forecasts, and presentation materials. His website is http://www.caycon.com.

Sunday, October 10, 2010

For those of you looking for startup ideas that are hot today and recession proof, consider anything to do with saving energy, sustaining the environment, or solutions to the global warming problem. These are especially good for Gen-Y (millennials) who have the passion, or every Gen-Y “wanna-be” (over 25 but not yet fulfilled).

Especially during a recovering economy, these will get you extra attention with investors, as long as basic business principles are not forgotten. Doing the right thing has to be profitable and competitive if it is to be sustainable.

Here are ten themes to get your mind rolling:

Reduce, reuse, recycle. Figure out how to recycle profitably your old cell phones. Come up with a responsible way to dispose of old medicines. Generate energy from the stuff you recycle.

Sustainable agriculture. Eliminate poisons from insecticides, weed killers, and other common products as well as the use of sprays in agriculture, and reduce dangerous chemicals in the food source.

Organic food. This can be done both as big business and on a relatively small farm; and the third, help in hunting and gathering food for oneself.

Healthy fast food. Make visits to fast-food restaurants healthy rather than the culinary equivalent of "impulse buys."

Save the global environment. Global warming, air and water pollution, and reducing energy usage are just the beginning.

Green construction. I’ve heard many ideas for greening your house and your business, from minor improvements - such as what paint to use - to major ones, such as how to choose and install solar electric panels.

There are programs out there to help businesses green their practices in a way that works with, and often enhances, the bottom line. There's a phrase in green-talk, "the triple bottom line" which encapsulates what it takes for a business to be truly sustainable - economy (profits), ecology (resource management), and equality.

The last refers more to the social issues of green businesses today. It's all about how a thriving business can enhance the community it is located in. Go green, and make it a triple bottom line – for your business, the economy, and the environment.

Saturday, October 9, 2010

Can an intangible like a company’s culture make a difference in your business? That is a tough question. After all what is culture? And can it impact your bottom line?

The concept of culture really entered the world of business through Peters and Waterman’s “In Search of Excellence.” They defined it in terms of successful organizations permeated with strong and sustaining systems of beliefs. Later authors have refined this definition to include a company’s character, its deeply entrenched perspective that influences the way that organization develops new ideas, weighs options, and responds to changes in its environment.

Perhaps a simpler way to think about culture is to think of it in terms of how an organization makes choices, how it develops its values, its ethics, how it trains, recognizes and rewards its associates, its spirit, and not to be overlooked, how it treats its customers - both internal and external. In other words culture can be thought of as the ideology of the organization (Mintzberg).

Clearly this concept sounds good, but does it really matter. Given the nature of various industries, both large and small, data on this issue is hard to come by. But are there lessons that can be learned?

The airline industry is one example that comes to mind. Its attractiveness from the point of view of Wall Street is low. Costs for entry and for modernization are high. Competition is high, profitability is low, especially low when compared with some of the new, hot industries such as those burgeoning in the high-tech arenas. In terms of analysts such as Michael Porter of Harvard, the bargaining power of buyers, the customer, is high. The customer has many alternatives, there is low buyer loyalty, decisions by customers are easy to make.

In other words it is hard to be different in this, the airline industry, Yet one company has been able to differentiate itself from all the other airline carriers - Southwest Airlines. And they are so successful they may soon become the largest airline in the US.

Yes Southwest does feature low costs to the consumer and none of the standard frills like meals, travel agents for reservations and baggage connections transfers, but they are also the most efficient with the lowest operating costs in this industry. Their service performance is perceived as extraordinary. Their on time ratings are excellent. They have the fewer complaints filed against them with the FAA then other airlines.

But the thing that most clearly differentiates Southwest from all of their competitors is culture -Southwest is a fun place to work and for many a fun airline to fly. Employee turnover is extraordinary low. Productivity is high - even pilots have helped with luggage and turnaround if needed. There has never been a layoff nor a labor shutdown in their history. Once you have a job with Southwest, it is yours for as long as you want. Lifetime employment is implicit. Employees are involved and empowered and rewarded for their performance and for innovation.

Southwest’s success is based on many things, not the least of which is that it is a place where there are a lot of people who take pride in what they are doing. As noted above this is a fun place to work and that spirit, that culture has made this airline over the past 35 years the most consistent profit performer in this mature and difficult industry.

Are there lessons here? If nothing else, focus on the attitude of your associates, your employees and how they interact not just with your customers but also with each other. What really matters is how you train, trust, treat them - how you recognize them, reward them - how you value them. Not to be ignored is how you lead them. Consider the model your behavior factors into this equation. As Herb Kelleher, former Southwest CEO, noted in a past Wall Street Journal article, “You have to recognize that people are still most important. How you treat them determines how they treat people on the outside.”

My conclusion is, not just for the airlines, but for virtually all businesses, culture counts. After all when you spend your money, don’t you want to do it where you are well treated, where you enjoy yourself, where your expectations are exceeded? And especially where you have fun.

Sunday, September 19, 2010

It used to be true that “everyone” incorporated in Delaware due to its more favorable terms, but many of these terms simply don’t apply to startups, or the differences don’t exist anymore. Most business professionals now recommend that your first choice should be your home state, or the state where your startup resides.

I live in Arizona, so I’ll use that state as an example. If your home state is Arizona, and you plan to do business there, following is a list of five key advantages of incorporating your business in Arizona:

Incorporation fees are low.

The process is simple, including the convenience of geographical proximity.

No need to register as a "foreign" corporation in the state of operation.

There are still business considerations which might override low cost and simplicity. For example, if your business is likely to get venture capital soon, have a large number of shareholders, or you have a high probability of going public, it might still be a good idea to incorporate in Delaware or Nevada due to these two states more size-friendly laws. The same applies if you are a foreign startup which needs to incorporate in the US to operate with American customers.

For the rest of us, there are distinct advantages to staying close to home. Let’s take a closer look at some of these advantages:

Arizona incorporation fees are low. Filing fees vary from state to state, but will fall anywhere from $50 in Mississippi to $410 in Nevada, including administration fees. Arizona is close to the bottom, with statutory fees of only $60. Even if you choose to add the expedite fee of $35, and consider another $100 for publication requirements, the costs to incorporate in Arizona are very reasonable.

The process is simple, including the convenience of geographical proximity. To incorporate a corporation in Arizona requires that you file Articles of Incorporation with the Arizona Corporation Commission, publish the incorporation filing in a newspaper of general circulation three times, and submit an affidavit of publication back to the Commission. Visit their offices in Phoenix or Tucson for personal service.

Local attorneys, if required, are more familiar with Arizona laws. If your company needs a complex structure, organizationally or financially, the assistance of a local attorney may be required. He will be familiar with any unique Arizona requirements for organizational structures, record keeping, capitalization, debt financing, role of shareholders, distributions, personal liability, and state tax considerations.

Your startup automatically gets an intrastate securities law exemption. To qualify for the intrastate offering exemption, a company must be incorporated in the same state where it is offering the securities and carry out a very significant amount of its business in that state. If you incorporate and do business in Arizona, this item alone can save you a significant amount of management time, paperwork, and legal fees.

No need to register as a "foreign" corporation in the state of operation. Most states have laws that require entrepreneurs to re-register a Delaware company in the state where it is actually doing business, and unfortunately, re-registration involves more than a few hours of paper work.

But don’t forget that forming the new corporation is just the "tip of the iceberg" with respect to operating a business in the corporate form. Although it is relatively easy and inexpensive to incorporate a business in Arizona, I recommend that you don’t hesitate to consult an Arizona corporate attorney when incorporating for issues that may require legal advice and action.

Now is the time to get started. With a little luck, your new startup should be up and running in 30 to 60 days.

Saturday, September 18, 2010

Writing a business plan can be a difficult process. Even if you know your product/service suite down cold, understand the strengths/weaknesses of the competition, and have built pro forma financials that are sane ... you still have to write the plan for a particular audience. What does that mean? A loan officer, angel investor, and venture capitalist are all looking for different things in a business plan. Your business plan’s writing style should take their preferences into account.

So what writing styles should you use for these very different audiences?

Bank Loan Officer: A business plan for bank lending should reflect a “meat and potatoes” writing style. Clarity is the name of the game. Avoid conversational, first-person writing. (“Hi, I’m writing this plan because ...” “I’ve put a lot of blood, sweat, and tears into this idea ...” “Funding is important to me because ...”) Avoid personal pronouns like, “my, our, we, and us,” in general.

The Executive Summary for a bank lending plan should be a literal summary of the entire business plan, with a paragraph roughly devoted to the product/service, market, industry, marketing, and management. Make the repayment terms as clear as possible at either the beginning or end of the Executive Summary. Keep in mind that a Small Business Administration-backed loan requires certain sections for a business plan. (You can read more about that here.)

Angel Investor: Writing a business plan for angel investors can be tricky. If you’re pitching your plan to Aunt Mary or Uncle Butch, then a conversational tone is probably okay. If you’re pitching to a member of an organized angel group, then a business-like tone is in order. For many angel investors, letting them know “What’s In It For Me” (WIIFM) is critical.

Applying a narrative approach to the problem you’re solving can also be helpful. (“According to XYZ Research, 30,000 people expressed a desire for Widget. However, there are no Widgets available. Until now.”) More stringent analyses of your competitors (through a Porter’s Five Forces model or SWOT analysis) are also helpful. They let an angel investor know why your idea is worth their hard-earned dollars.

Venture Capitalist: As you probably know, venture capitalists are extremely busy individuals. They will likely only read your plan’s Executive Summary – at first. Make it compelling, free of typos, compelling, concise, and, oh yes ... compelling. As with angel investment plans, it’s important to “lead with the need” in the opening paragraphs, stating the problem you are intending to solve. Alternatively, a strong opening that focuses on the “total addressable market” in clear and concise language is also appropriate.

Make sure the venture capitalist understands you’ve done your homework, but avoid making grandstanding statements (“The Widget will revolutionize the world.”) The latest market research is crucial – but choose carefully. A report projecting a sector will achieve $70 billion in revenue by 2014 will make you look like an amateur. Focus on your designated market area instead.

Always keep in mind that a business plan is a “living document.” The content and financials within can change as you see fit. Conversely, you may want to keep the fundamentals of the plan, but focus on a different audience. For example, if you decide outside investment is more appropriate for your concept than a bank loan, then the writing style should change accordingly.

A writing style that presents your idea attractively can pay dividends in other ways. Your investor will realize you care about attention to detail. The investor will certainly appreciate the effort you put into creating a professionally-written business plan.

The way your plan is written can give you the edge you need when pitching your dream.

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Today’s guest blog post is by Mahesh Raj Mohan, a freelance writer and editor based in Portland, Oregon. He possesses 15 years of experience as a professional writer. He has written or edited thousands of business plans and served as a business plan consultant for numerous entrepreneurs. You can reach him directly by email or via his website.

Saturday, September 11, 2010

As an entrepreneur, you know the world changes constantly, and you know the value of being able to adapt quickly. But changes to your startup need to be done for cause, well thought out, and communicated effectively to all impacted parties. Don’t lose your focus, or allow your operation to descend into chaos.

Here are a few principles that I recommend to guide you in the change process, and keep you on track and focused:

Customers and competition must be the driving force. Too many founders make costly changes to their product and operation based on random comments from friends, family, and potential investors. Stay focused on solving a specific customer problem, and don’t get whiplashed by the whims of informal advisors.

Listen to the team, but drive the vision yourself. Your challenge is to be able to separate the ideas that hone your vision from those that redirect it. Of course, all ideas need to be evaluated for relevance to the plan, cost to implement, and impact on the overall potential. There is a big difference between a plan adjustment and a new vision.

Carefully evaluate and measure impact before adopting changes. Use data to evaluate alternatives whenever possible, rather than gut-level decisions, emotions, and personal agendas. Good questions you should ask yourself would include:

1) What amount of time, money and human resources are needed to implement the additions/modifications?

2) Are the changes essential from a competitive point of view?

3) What is the financial effect of not carrying out these additions/modifications?

4) What is the overall benefit if the additions/modifications are made?

Change is not always about product and features. The primary issues are often not building the right product, but getting the attention of the right customers. Focus is critical here. By focusing on the needs of a small subset of the potential market and specific customers, change decisions become much easier.

If investors funded your plan, include them in change discussions. All outside investors need to be included in plan change discussions. Remember that they funded a specific plan, with specific financial projections, and specific milestones. Changes to these without consultation will jeopardize your relationship and future funding.

Obtain Board approval before implementing changes. Do your assessment of alternatives, but don’t act without approval by the Board of Directors. In addition, you should ensure that the entire senior management team is fully supporting your recommendations. This may seem like a burden, but it’s really a good reality check.

Closely monitor plan execution. You and funding partners have a vested interest in the success of your startup. In most cases, the financial commitment is not allocated in a single amount, but rather in tranches based on meeting specific quantifiable milestones. For your own decision making, and to maintain an open and constructive relationship with funding partners, there should be no surprises.

Too many startups try to enter the market with an end-to-end product, which is the large company approach, and obviously ideal from some customers perspective. But startups should focus on innovation and breakthrough offerings, not end-to-end solutions. After some initial traction, you can always add features. Change should not mean adding more, but tuning the entry product and the entry process, with the full support of your team and your investors. Keep your eye on the target.

Today’s article is presented by one of the founders of our Startup Professionals team, Ernst H. Gemassmer. He resides on the West Coast, and has long helped entrepreneurs there, as well as providing turn-around assistance as interim CEO, and International coaching. You can contact him directly at ernst@startupprofessionals.com .

Thursday, September 2, 2010

My introduction to startups really came when I first worked in IBM with Philip Donald Estridge back in 1981. Known as Don Estridge, he led development of the original IBM Personal Computer, and thus is known as "father of the IBM PC". He’s gone now, but I still remember him fondly.

He and Bill Lowe somehow managed to convince then CEO Frank Cary to give them a dozen engineers, a small budget, and a few months, to set up a small skunk-works called Entry Level Systems in Boca Raton, Florida, to develop a low-cost personal computer (code name “Acorn”). This was to compete against increasingly popular offerings from the likes of Apple Computer, Commodore International, and Radio Shack.

He was an engineer, so his first act was to buy one of each of these computers, and disassemble them in his office (a practice frowned on in IBM at the time – due to lawsuits). He then brought in the engineers and challenged them to do better in each of the functional areas, or find a cheaper solution with parts off the shelf. That was pure Don Estridge – always challenging the team to push beyond their comfort zone.

IBM had traditionally done all its own vertical technology development, so this outside vendor thing broke all the rules. He went to vendors for common hardware parts, went to outside software developers for the operating system and application software, and acted as an independent business unit. This caused great consternation within IBM at the time, but ultimately set the standard against which all IBM technology had to compete.

These changes enabled his team to develop and announce the IBM PC in 12 months -- at that time faster than any other hardware product in IBM's history. Estridge also then published the specifications of the IBM PC, allowing a booming third-party aftermarket hardware business to take advantage of the machine's expansion card slots.

The startup process and the importance of founders with a vision and energy hasn’t changed much in the last 30 years, but the technology has improved by orders of magnitude. Here are a few PC-related examples:

CPU speed was 4.77 mHz, now 3.0 GHz dual processors, a factor of at least 1000x

Minimum memory shipped increased from 16K to 2G, a factor of 125000x

Disk space was a floppy disk holding 160K, now hard disk of 500GB, a factor of 3000x

Telecommunications speed of 300 bps to 1.6 Mbps, a factor of 5000x

As with many successful entrepreneurs, Don Estridge was a humble man, who was actually embarrassed by the size of his office, as his stature and rank grew in IBM. It is said that Steve Jobs offered Estridge a multi-million dollar job as president of Apple Computers, which he turned down. He had an excellent relationship with Bill Gates, who probably extended him a similar opportunity, but Don was too proud of his IBM heritage.

His leadership dramatically changed both IBM and the computer industry, resulting in a vast increase in the number of personal computers sold and bought, thus creating an entire industry of hardware manufacturers of IBM PCs. He immediately was asked by top executives to apply that leadership to the mainstream business of IBM mainframes.

Unfortunately, before very long he was killed in the tragic crash of Delta 191 at DFW airport (wind shear), along with his wife, Mary Ann, on August 2, 1985, so we will never know what additional legacies he might have left.

But like every true leader, he left a great legacy with everyone he worked with, a conviction that anything is possible in business if you believe in it and work hard. He was a role model we can all aspire to, and rare true entrepreneur.

Tuesday, August 31, 2010

According to a report distributed by the Angel Capital Education Foundation, total startup funding from venture capital funds, state funds, and angel investors totals approximately $20.8 billion annually. Surprisingly, friends and family contributed nearly three times the amount of capital to thousands of startups each year. With approximately $60 billion in startup funding coming from friends and family, entrepreneurs must consider this as an option as they seek to launch new businesses.

Money issues between friends and family can ruin relationships. Due to the risk involved with investing in a startup, if you are requesting investment from friends and family, be sure to consider these five steps before you begin the capital raising process:

Prepare a pitch. Just because you are requesting investment from your mom or a group of your college buddies doesn’t give you an excuse to be unprofessional. Take this opportunity and the potential risk taken by your investor seriously. Do your homework, and prepare a professional, persuasive and passionate presentation. You want your friends and family to buy into your vision, not just hand over some cash because they feel obligated or pressured.

Have a game plan. When you are seeking angel investment or venture capital investment, you will need a strong business plan, but do you really need a business plan for your friends and family? Instead, you might consider a vision, strategy, and tactics plan. You will start by developing a vision for the future of your business, then strategies to reach your vision, and finally day-to-day tactics to accomplish your strategies. For example, assume that you have a vision of becoming the leading online retailer of picture frames. One strategy may be to utilize search engine traffic to bring in customers. Finally, you will develop tactics such as building quality links to your website through social media and professional article writing to boost your rankings in the search engines.

Have an exit strategy. Angel investors and venture capitalists want to know how you intend to grow their investment. They want to know when and how you intend to repay them, with interest. Your friends and family should be no different. Although you want to disclose the fact that investing in a startup is risky, you should also outline a detailed strategy for the investor to exit profitably. Maybe you will structure the capital as a high interest loan, or maybe they will own a percentage of the business and be repaid through the profits. No matter the structure, you should have a detailed plan for repayment.

Consider making it official. Depending on the size of the investment you may consider hiring a lawyer to file the necessary paperwork to make everything official. Obviously this will give the investor peace of mind, and it should help you in the future as you seek angel investment. Making it official gives you credibility for future rounds of investment. Remember to use judgment though, if your buddy is going to invest $10,000, and the legal fees amount to $2,500, you may want to resort to a firm handshake.

Follow through. Again, investing in a startup is risky, and your friends and family probably know that, but they should expect to earn a return on their investment. Don’t view this capital as a gift, instead follow through with what you promised. If things don’t go exactly as planned, be sure to communicate regularly so that they know what to expect. If at all possible, follow through. If you fail to deliver as promised you risk your entire relationship and your ability to raise capital in the future.

As you seek capital for your startup don’t neglect the $60 billion opportunity represented by friends and family, but tread carefully as you risk something far greater than the failure of your business--your relationships.

Today's guest blog is by Adam Hoeksema, founder of the ExecutivePlan. Adam is the author of a blog that primarily assists entrepreneurs in the process of writing powerful executive summaries, preparing elevator pitches, and hurdling the many obstacles encountered during the startup phase of a business. His blog is http://www.theexecutiveplan.com .